Aviation insurance prices have taken a nose dive over the last two decades. And while you can expect rates to remain flat for the foreseeable future, one upcoming development will undoubtedly impact your book of business—whether or not your agency has ever sold an aviation policy.

Pricing Trends

Aviation insurance tends to be a “glamour business,” says Doug Johnson, president of JSL Aviation Insurance. So when the market hardened overnight after 9/11, insurance companies profited for a few years, prompting investors to chase returns in the market.

Then, the recession hit and changed everything. “You have capacity building tremendously, the flow of business decreasing because of the recession and the value of aircraft overall going down because of the recession,” Johnson says. “When your rating base shrinks, your flow of business shrinks and your capacity increases, the rates just fall off a cliff.”

And that’s exactly what’s happened: “We were seeing 20-30% decreases for two or three years in a row, and there’s no end in sight,” Johnson says. “Airplane values are rising slightly, but only very slightly. The amount of capital hasn’t gone anywhere. The chance for rates to firm up is just not there—everyone is fighting over a shrinking pie.”

In fact, premiums for certain classes of aviation business are about half of what they were 15 years ago, according to Chad Trainor, vice president of Arlington/Roe. “Rates started creeping up after 9/11 and then the economy turned in the late 2000s, so rates softened dramatically,” he explains. “In recent years new carriers have entered the aviation marketplace, adding competition to an already soft market.”

Bill Snead, president of the Aircraft Owners and Pilots Association Insurance Services, expects the market to remain fairly stable for the rest of the year—“with some hardening in certain segments,” he says. Trainor expects slight increases moving forward, explaining he has seen new sales for aircraft “trickling upward,” and the improving economy might have “a positive impact” on aviation, says Jim Roe, president of Arlington/Roe.

But “pricing is still pretty soft and losses have been below forecast, so there is little reason to bump up pricing,” Roe says. “Technology today is tremendously greater than it was 15 years ago, resulting in a safer flying environment.”

On the Horizon

But don’t give up on aviation just yet. That technological growth will only accelerate moving forward—especially with the rise of unmanned aerial systems (UASs), known to most people as drones. “It’s going to be a huge area of opportunity,” Roe says. “We’re getting more and more calls about drones. Underwriting criteria and pricing models for drone risks will continue to evolve within the changing marketplace.”

Since drones will be operating in public airspaces, they’ll undoubtedly require insurance—but “the insurers are delving into something they’ve never had to deal with before,” Johnson says. “It’s completely uncharted territory—not so much because you don’t have a pilot as much as the size of these things. They go everywhere from something that literally can fit in the palm of your hand to something that is the size of a 747.”

That means it will be a huge struggle to figure out how to classify and regulate drones—not to mention making sure users play by the rules. Congress has mandated that the FAA release regulatory guidelines for incorporating UASs by September 2015—a timeline that makes Johnson skeptical, considering the rule-making process is “cumbersome by design” and usually takes anywhere between seven and 10 years. “It’s easy to pass new insurance regulations and make new laws,” Johnson says. “The hard part’s enforcing them.”

In the meantime, agents should prepare for drones to infiltrate their business—whether or not they specialize or even dabble in aviation.

“Be it because a customer is a widget manufacturer or somebody that makes cameras or sensors or a real estate company that is going to buy one to take aerial photography of their properties—regardless of whether they’ve ever insured an airplane or not, they’re probably going to get a call about a UAS,” Johnson says.

Not sure how to grow your aviation book so your agency can get a piece of the drone action? Keep an eye on IAmagazine.com and upcoming issues of the Markets Pulse e-newsletter for tips on entering the aviation market.

Jacquelyn Connelly is IA senior editor.